19th Sep 2006 14:46
F&C Private Equity Trust PLC19 September 2006 To: Stock Exchange For immediate release: 19 September 2006 F&C Private Equity Trust plc Interim results for the twelve months to 31 July 2006 • NAV total return for the twelve months of 15.1 per cent for the A shares; • NAV total return for the twelve months of 27.7 per cent for the B shares; • £49.8 million added to net assets by the acquisition of the assets of Discovery Trust plc in August 2005; • Conversion of £42.5 million from C to B shares; • Realisation of private equity assets of £24.3 million; • New investment in private equity assets of £35.2 million; Chairman's Statement The last twelve months have seen further substantial progress for your Companyand I am once again delighted to be able to report strong returns forshareholders. Earlier this year the Board decided to change the Company's year end from the31st July to 31st December. This brings us more closely into line with thereporting dates of our underlying investments and our competitors who generallyhave calendar year ends. This report is therefore a second interim rather thanan annual report, although it covers a full year, while the Annual GeneralMeeting is being held in December for the last time. From 2007 I expect it tobe held in May. The NAV per A share at 31st July was 36.47p. The Company has recently increasedits distributable reserves through cancelling the share premium account and thisenables us to declare a further substantial special dividend for A shareholdersof 15.5p per share. This will be paid on the 20 October. The net assets of theA pool now stand at £24.5m prior to the special dividend, which will return£10.4m. The NAV total return of the A shares over the twelve months to 31st Julywas 15.1 per cent. The A portfolio, although increasingly concentrated, stillcontains some promising investments and it is our intention to realise as manyof these as practical. The NAV per B share at 31st July was 166.30p. The B pool, which has beenaugmented by conversions from the C pool each quarter, had net assets of £112.1mat the 31st July. The NAV total return of the B shares over the twelve months to31st July was 27.7 per cent. It is our intention to declare interim dividends for the A and B shares for the17 month accounting period ended 31st December 2006 as soon as practicable afterthe final conversion takes place. The C share NAV at 31st July was 94.08p. The C pool has been largely liquidatedand at 31st July had net assets of £7.9m of which £4.1m was cash or gilts. EachC shareholder has been progressively converting into B shares. The blended NAVtotal return for each C shareholder from inception to 31st July was 10.3 percent. The final conversion of remaining C shares into B shares will take placeon 26th September. We will then have a B pool of approximately £120m and an Apool of approximately £14m following the payment of the special dividend. The period under review has once more been a strong one for private equityinvestments. This has been a function of the demand for capital by growingprivate companies internationally and the ability of private equity funds andthe banking sector to meet this demand. The volume of transactions involvingprivate equity is increasing and this has been reflected in our portfolio wherethere has been considerable activity with a flow of realisations from thematuring funds being balanced by our steady programme of investment in new fundsand direct holdings. The considerable additional resources which the C pool hasprovided are being deployed through a combination of the drawdowns of primaryfunds, the acquisition of selected secondary positions in funds, and inco-investments directly in private companies. At the Annual General Meeting weare asking shareholders to approve an increase in the proportion of theCompany's assets that can be invested in direct equity investments from 25 percent to 33 per cent. We are also reviewing the listed private equity fundsinternationally and would expect to invest some of the liquid resources of thetrust in this area when valuations are right. The increased scale of the B pool is proving helpful to your manager inconstructing and maintaining a well balanced high quality portfolio of privateequity investments and it has also had a beneficial effect on the rating of theshare price. The future progress of the Company depends on the success of theunderlying companies in our portfolio, a product not only of manager selectionbut of the health of the global economy. The investment managers and companymanagements with whom we interact are generally confident, despite the potentialpressures which oil prices or international affairs can exert on the businessenvironment. Sir James McKinnon joined the Board at the time of the merger with DiscoveryTrust in August 2005 and, as planned will be standing down at the AGM. I wouldlike to thank him for his contribution to all the deliberations of the Board.He brought a fresh approach to our affairs and we will miss his wise counsel. David Simpson Manager's Review The portfolio of the Company has evolved and strengthened over the year. We havebeen aided by a supportive private equity environment where realisations havebeen achieved and new dealflow is strong. There are, of course, competitivepressures and in certain sub sectors of the international private equity marketthere can be many investors trying to acquire good quality fast growing or cashgenerative private companies. The degree to which this might threaten futurereturns varies, but it is our experience that with the larger deal sizes thereare more bidders and higher prices. In the mid market, which we define asconsisting of private equity deals where the enterprise value lies between €50and €500m, there tend to be fewer participants in auctions and whilst everyworthwhile deal is at least partially intermediated, the term 'proprietarydealflow' has some meaning. The mid market is very broad internationally and remains generally inefficientand therefore continues to offer good opportunities to skilled investors. Thereis a large quantum of private equity capital focusing on the mid market and incertain markets competition is such that securing deals on price alone isunwise. Increasingly private equity investors are looking to acquire companieswhere they have an edge over the other bidders. This may derive from priorexperience in the sector, an ability to make synergistic acquisitions and apractical ability to grow the business. Additionally it helps if management canhave confidence that the deal will succeed and a proven track record ofsuccessful deals with clear added value is normally useful evidence of this. Itis observable that the best private equity investors have such characteristicsand it is this resulting 'franchise' which allows them to buy companies well,grow them and make excellent returns. In current market conditions it is not enough for private equity investors torely on high leverage and rising markets and those with additional skills arelikely to outperform. The private equity investor has many advantages over aninvestor in publicly quoted companies. These often relate to access toinformation and rights to make changes in the management and strategy ofcompanies, but these advantages can only be fully exploited by those withappropriate skills and experience. It is our objective to identify these privateequity investment managers who are operating in the mid market, to invest withthem and alongside them. In this way we will sustain the best returns for ourshareholders. Not only is the mid market inefficient and broad but it is where many of theemerging managers are found. Our experience is that identifying futuresuccessful managers early is particularly rewarding as the alignment of interestbetween investors and private equity manager is unusually close during theformative phase of a private equity firm's development. The exchange ofinformation is usually stronger and consequently our understanding of how theyachieve their returns is closer. This provides positive feedback into ourdecision making process for future fund and direct investments. Over twelve months total investment in private equity assets, either funds orco-investments, was £35.2m. £22.4m of this was drawn down by funds, £6.2m wasinvested in acquiring secondary positions in funds and £6.6m in co-investments.We have made new commitments to 16 funds over the period. All of these newinvestments were for the B pool. The underlying portfolio of companies continues to broaden. With theinternational funds we have been able to gain exposure to a wide variety ofprivate companies with diverse economic drivers and covering many differentgrowth trends. Examples of recent investments which illustrate this rangeinclude £0.5m invested by Candover 2005 in UPC Norway, a cable company servingOslo and the major cities of Southern Norway, £0.3m by Montagu III into BSN aGermany based medical products company, £0.5m by LGV 4 in South LakelandCaravans, £1.3m by August Equity IV into Rixonway Kitchens, and £0.4m by PrimaryCapital III into Haines Watts Business Recovery and Insolvency. We have been actively making co-investments with 4 completed during the year.There are certain principles underlying our co-investment portfolio, which mayaccount for up to 33 per of the overall B pool portfolio, namely that the dealsare led by private equity groups whom we know well, that the companies must havestrong proven management, that our investment should be significant to thecompany and that the resulting portfolio of co-investments is heterogeneous.With these principles in mind we invested £1.5m into Equidebt, a debt collectionagency and purchaser of charged off consumer debt based in Stratford upon Avon(RJD Partners lead), £1.1m into Viking Moorings, the market leader in oil rigmoorings in the North Sea (Inflexion lead), £2m into Whittan, a manufacturer ofpallet racking systems (Stirling Square lead), and £2m into LMS Holdings, marketleading provider of remortgage conveyancing services (RJD Partners lead). A very effective way of investing in private equity is to acquire secondarypositions in funds which are already partially or substantially invested andwhere the management group is well known. The advantages are that it is possibleto assess the investments as well as the management and often the holding periodbefore realisations is relatively short. We have bought three such secondarypositions. We acquired a £15m commitment in the well known UK mid market fund,August Equity IV. The acquisition cost for this partially drawn fund was £3m andwe also assumed an undrawn commitment of £8m. In the USA we acquired a $5mposition in Brown Brothers Harriman's 1818 Mezzanine Fund II. This involved aconsideration of $2m and an undrawn commitment of $1.3m. We also bought aposition in the specially formed fund HFP which comprises Inflexion ledinvestments, for £2m with a further commitment of £1m. In each case we had goodvisibility on the portfolios and we were well acquainted with the managementgroups. It is likely that we will selectively acquire further fund positionswhich are complementary to the rest of the portfolio and which can enhancereturns. Over the twelve month period the portfolio has had realisations totalling£24.3m. From our longstanding fund holdings major realisations have included£4.6m from Acertec (Candover 1997 Fund) which was recently listed on AIM, £2.8mfrom JJI Lighting (International Mezzanine), £1.2m from EurotaxGlass (Hicks MuseFund IV), bought by Candover 2005 Fund, £1.75m from Clear Channel (formerlyHicks Muse IV) and a total £1.2m from Third Private Equity Fund, now managed byNova Capital. There is now a robust flow of realisations and recapitalisationsfrom the more recent funds. Examples include £0.6m from the listing of GAM,machinery rental business on the Madrid stock exchange (Nmas1), £0.3m from taxconsultancy Alma (Chequers Capital), £0.5m from Celtic Inns ( Equity HarvestFund - Dunedin) and £0.4m from, Polish bus builder, Solaris (AccessionMezzanine). In addition we have sold our holding in Candover investments for theA pool yielding £4.9m. The most notable realisation of the year was from thelisting of our co-investment with TDR Capital in Gondola Holdings, the holdingcompany of Pizza Express. Gondola is now listed on the stock exchange and so farwe have received £3.2m back. The company is currently subject to a bid approachwhich may allow us to exit the remaining position. The largest valuation uplifts over the period have related to the funds anddirect investments where there have been realisations and fundamental progresson the underlying investments. The biggest uplift was £6.2m for GondolaHoldings.The Dakota, Minnesota and Eastern Railroad has been trading well andthis has been uplifted by £3.2m over the year. TDR Capital has shown a gain of£3.2m and Candover 1997 Fund £2.6m. Other substantial uplifts include AugustEquity IV (+£1.4m), Candover 2001 Fund (+£1.2m), Nmas1 (+£1.1m), ChequersCapital (+£0.8m) and Warburg Pincus VIII (+£0.6m). Of our other direct holdingsthere were uplifts for Academy Music Group of £0.7m and Global DesignTechnologies of £0.3m. A total of 16 new fund commitments were made during the year. In the UK we havebacked a number of mid market buy out funds with £8m to Primary Capital III, £5mto LGV 5, £10m to Inflexion 2006 Buy-out fund, £8m to RJD Partners II, £5m toDunedin Buyout Fund II and £4m to Piper Private Equity IV. We have added to ourEuropean country fund portfolio with commitments to Chequers Capital XV (€7.5m,France), Ibersuizas (€5m, Spain) and DBAG V (€8m, Germany). Funds which coverall of Europe include Candover 2005 (€15m), TDR Capital II (€10m) and HuttonCollins Capital Partners II (€10m). In the USA we have backed Blue Point CapitalII ($10m) and Camden Partners Strategic III ($5m). We have backed two venturecapital funds; SEP III (£7.5m) and Life Science Partners III (€5m). The totaloutstanding undrawn commitments of the B pool are currently £126m. These will bedrawn down over the next several years. Given the maturing portfolio andsignificant liquid resources of the Company and the unutilised borrowingfacilities this level of commitments is well within the Company's capacity.These new commitments will combine with the existing portfolio to form thefoundations of future growth. Hamish Mair For more information, please contact: Hamish Mair 0131 465 1184Martin Cassels 0131 465 [email protected] / [email protected] Alastair Moreton, Arbuthnot Securities Ltd 0207 012 2000Sue Inglis, Intelli Corporate Finance 0207 653 6300 F&C PRIVATE EQUITY TRUST plc Income Statement for the twelve months ended 31 July 2006 Unaudited Revenue Capital Total £'000 £'000 £'000 Gains on investments - realised - 11,437 11,437 - unrealised - 13,351 13,351Currency losses - (2,029) (2,029)Income - franked 482 - 482 - unfranked 3,084 - 3,084Investment management fee (338) (1,016) (1,354)Other expenses (740) (490) (1,230) _______ _______ _______Net return before finance costs and taxation 2,488 21,253 23,741 Interest payable and similar charges (25) (74) (99) _______ _______ _______Return on ordinary activities before taxation 2,463 21,179 23,642 Taxation on ordinary activities (657) 331 (326) _______ _______ _______Return on ordinary activities after taxation 1,806 21,510 23,316 _______ _______ _______Returns per A share 0.87p 5.04p 5.91p _______ _______ _______Returns per B share 1.48p 34.77p 36.25p _______ _______ _______Returns per C share 1.49p 1.02p 2.51p F&C PRIVATE EQUITY TRUST plc Income Statement for year ended 31 July 2005 Audited Revenue Capital Total £'000 £'000 £'000 Gains on investments - realised - 2,991 2,991 - unrealised - 16,544 16,544Currency gains - 56 56Income - franked 182 - 182 - unfranked 2,870 - 2,870Investment management fee (170) (510) (680)Other expenses (334) - (334) _______ _______ _______Net return before finance costs and taxation 2,548 19,081 21,629 Interest payable and similar charges (17) (49) (66) _______ _______ _______Return on ordinary activities before taxation 2,531 19,032 21,563 Taxation on ordinary activities (707) 168 (539) _______ _______ _______Return on ordinary activities after taxation 1,824 19,200 21,024 _______ _______ _______Returns per A share 1.58p 12.83p 14.41p _______ _______ _______Returns per B share 1.96p 27.05p 29.01p _______ _______ _______Returns per C share - - - F&C PRIVATE EQUITY TRUST plc BALANCE SHEET As at 31 July 2006 As at 31 July 2005 (audited) (unaudited) £000 £000 £000 £000Investments at market valueListed on recognised exchanges 36,275 9,210Unlisted at directors' valuation 94,924 65,434 _______ _______ 131,199 74,644 Current assetsDebtors 1,416 108Cash at bank 13,556 9,210 _______ _______ 14,972 9,318CreditorsAmounts falling due within one year (1,674) (1,123) _______ _______Net current assets 13,298 8,195 _______ _______Net assets 144,497 82,839 _______ _______ Capital and reservesCalled up ordinary capital 1,514 1,063Share premium account 48,763 -Special distributable capital reserve 40,000 40,000Special distributable revenue reserve - 10,061Capital redemption reserve 544 -Capital reserve 51,739 30,229Revenue reserve 1,937 1,486 _______ _______Total shareholders' funds 144,497 82,839 _______ _______Net asset value per A share 36.47p 46.76pNet asset value per B share 166.30p 131.37pNet asset value per C share 94.08p - F&C PRIVATE EQUITY TRUST plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Year ended Year ended 31 July 2006 31 July 2005 Equity shareholders' funds at 1 August (as 76,641 66,928previously reported)Less revaluation of investments from mid to bid (186) -pricesAdd dividends accrued 6,384 7,575 _______ _______Equity shareholders' funds at 1 August (as 82,839 74,503restated) Return on ordinary activities after taxation 23,316 21,024Dividends paid (11,415) (12,688)Issue of C shares 49,757 - _______ _______Equity shareholders' funds at 31 July 144,497 82,839 _______ _______ F&C PRIVATE EQUITY TRUST plc STATEMENT OF CASH FLOW Year to Year to 31 July 2006 31 July 2005 (unaudited) (audited) £000 £000 £000 £000 Operating activitiesNet dividends and interest received from 2,450 3,233investmentsInterest received from deposits 635 348Investment management fee (1,071) (765)Cash paid to and on behalf of directors (116) (72)Bank charges (4) (4)Other cash payments (1,212) (167) _______ _______Net cash inflow from operating activities 682 2,573 Servicing of finance Interest paid (99) (68) _______ _______Net cash outflow from servicing of finance (99) (68) TaxationCorporation tax paid (298) (1,528) _______ _______Net cash outflow from taxation (298) (1,528) Capital expenditure and financialinvestmentPayments to acquire investments (82,949) (18,243) Receipts from disposal of investments 94,867 25,471Cash transferred from acquisition of 3,558 -Discovery Trust _______ _______Net cash inflow from capital expenditure 15,476 7,228and financial investment Equity dividends paid (11,415) (12,688) _______ _______ Net cash inflow/(outflow) before financing 4,346 (4,483) _______ _______ Increase/(decrease) in cash 4,346 (4,483) _______ _______ Notes 1. The unaudited interim results have been prepared on the basis of theaccounting policies set out in the statutory accounts of the Company for theyear ended 31 July 2005 apart from the following in accordance with FRS 21 andFRS 26 effective for accounting periods commencing 1 January 2005. • Dividends payable by the Company are recognised in the period in which they are paid. As a result of this change the Company's shareholders' funds as at 31 July 2005 have increased by £6,384,000 (being the special dividend of 7.5 pence per share paid on 26 August 2005 and the revenue dividends of 1.20 pence per share paid by the A Pool and 1.40 pence per share paid by the B Pool on 9 December 2005). • Quoted investments are now valued at bid prices. This has the effect of reducing the valuation of the investment portfolio by £186,000 as at 31 July 2005. 2. The Directors have declared a special dividend of 15.5 pence per Ashare to be paid on 20 October 2006 to shareholders on the register on 29September 2006, having an ex-dividend date of 27 September 2006. 3. These are not full statutory accounts in terms of Section 240 of theCompanies Act 1985. The full audited accounts for the year to 31 July 2005,which were unqualified, have been lodged with the Registrar of Companies. Afull interim report will be sent to shareholders in September 2006, and will beavailable for inspection at 80 George Street, Edinburgh, the registered officeof the Company. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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